PETALING JAYA: PIE Industrial Bhd
, whose financial performance was hit by foreign exchange (forex)-related challenges, is expected to see a stronger fourth quarter (4Q) for its financial year 2024 (FY24) as currency volatility stabilises and production ramps up for key clients.
Kenanga Research said despite lower turnover, PIE’s gross margin for the nine months ended Sept 30, 2024 (9M24), improved by nearly four percentage points to 9.3%, thanks to an optimised client mix.
However, it said the rapid strengthening of the ringgit led to increased forex losses, putting pressure on the electronics manufacturing services (EMS) firm’s net profit.
“With currency volatility normalising, we expect stronger sequential performance in 4Q,” it noted in a research note.
Additionally, Kenanga Research highlighted that the improvement will be supported by increased production volumes from customer A, along with an enhanced integrated circuit supply and expanded dedicated floor space.
The research house noted that the project operates on a consignment basis, with customer A supplying all materials while PIE handles the surface mount technology process and final assembly.
“While revenue may appear modest, the contribution to the bottom line is significantly amplified,” it added.
Looking ahead, Kenanga Research said PIE is on track to commence mass production for a new data centre client in 2025 and is exploring further opportunities in automotive, robotics, medical and telecommunications sectors.
“Following the successful completion of the first sample batch, PIE is set to begin mass production for a newly secured data centre client in 2025, focusing on server and switcher products,” it said.
For the 9M24, PIE reported a net profit of RM35.84mil, down 22% from RM46.09mil in the previous corresponding period.
Kenanga Research noted that while this result was in line with its own expectations, it fell short of the broader market estimate, achieving 51% of its forecast and 41% of consensus projections.
The research firm attributed the variance to forex impacts primarily.
Kenanga Research maintained its financial forecasts for the EMS company, pending updates from an upcoming briefing.
It reiterated its “outperform” rating on the stock, maintaining a target price of RM6.35 per share.
The brokerage said the target price is based on a price-to-earnings ratio of 23 times its estimated FY25 earnings, reflecting a 10% discount compared to artificial intelligence server-related peers.
“We believe PIE’s value proposition lies in its robust track record, positioning it as a highly sought-after EMS provider, particularly as Chinese companies accelerate their China+1 strategy to mitigate potential US tariffs on Chinese imports,” it added.
